Understanding the Law of Demand and Market Dynamics

Law of Demand

States that, other things equal, when the price of a good falls, the demand for the good rises; when the price rises, the demand for the good falls.

Demand Curve Shift

If buyers today become more willing and able than before to purchase larger quantities of stand up paddle boards (SUPs) at each price, the demand curve for SUPs will shift to the right.

Determinant of Demand

The price of a resource that is used to produce the good is not a determinant of demand.

Inferior Good

If macaroni and cheese is an inferior good, then an increase in a consumer's income will cause the demand curve for macaroni and cheese to shift to the left.

Substitutes

Two goods are substitutes when a decrease in the price of one good decreases the demand for the other good.

Complementary Goods

If toast and butter are complements, then a decrease in the price of butter would increase the demand for toast.

Market Equilibrium

If roses are currently selling for $40 per dozen, but the equilibrium price is $30 per dozen, we would expect a surplus to exist and the market price of roses to decrease.

Quantity Demanded

When the price of a good rises, the quantity demanded of the good rises.

Demand Increase

A movement downward and to the right along the demand curve indicates an increase in demand.

Demand Decrease

A movement upward and to the left along the demand curve indicates a decrease in demand.

Price of Complementary Good

The price of a complementary good affects the demand for the related good.

Price of Substitute Good

The price of a substitute good affects the demand for the related good.

Consumer Willingness

An increase in consumer willingness to purchase a good at each price leads to a rightward shift in the demand curve.

Surplus

A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price.

Shortage

A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.

Price Increase Effect

An increase in the price of a good typically leads to a decrease in the quantity demanded.

Price Decrease Effect

A decrease in the price of a good typically leads to an increase in the quantity demanded.

Market Price Adjustment

The market price adjusts to eliminate shortages and surpluses.

Demand Shift Direction

A rightward shift in the demand curve indicates an increase in demand.

Demand Curve Movement

Movement along the demand curve indicates a change in quantity demanded due to a change in price.

Equilibrium price and quantity of lattés with reduced labor

The equilibrium price would decrease, and the equilibrium quantity would increase.

Equilibrium price and quantity of lattés if cappuccino price falls

The equilibrium price would decrease, and the equilibrium quantity would increase.

Equilibrium price and quantity of lattés if muffin price rises

The equilibrium price would increase, and the equilibrium quantity would decrease.

Equilibrium price and quantity of coffee if wages of pickers fall and tea price falls

Price would fall, and the effect on quantity would be ambiguous.

Market for an inferior good with decreased income and technological advancement

Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Event resulting in higher price for cigars

Demand for cigars increases, and supply of cigars decreases.